06 Apr Tips for growing your investment property portfolio
As interest rates hit record lows, auction clearance rates surge and capital growth expectations peak, it appears to be a good time for property investors.
Even if you already have skin in the game, the next step in your property investment journey is just as important as the first. If you’re looking to grow your portfolio, here are BMT’s key tips.
1. Strategy alignment
What’s your current investment strategy? Property investment is a long-term choice so your portfolio growth can’t be a rushed decision. Any addition must align to your current strategy, not work against it.
Consider the property type and location, and how this works with your current investments. For example, don’t rule out purchasing a property in a completely different location. The current market has proven how much rental yields can change between state and territories, so a far-away investment could be the answer to diversifying your portfolio.
2. Do the research
By doing the research, you will find the hidden gem that will be the best fit for your portfolio.
Look into different locations, their population trends, average rental yields, employment rates, local infrastructure, rental vacancy rates and property value history. Once you have narrowed down your preferred locations, youcan start looking for the property itself.
3. Partner up
The upfront and ongoing costs of owning an investment property can exceed expectations and sometimes be more than the income. Splitting the costs with another person or between a group of people can be an affordable option to growing your property portfolio.
Having all your ducks lined up is essential to any jointventure in property investing. All partied need to agree the approach, roles and responsibilities while ensuring all the legal boxes are ticked.
4. Leverage equity
You earn equity with your property if its value goes up (capital growth) or by paying down principal.
Let’s use an example of paying a $500,000 for a property. After several years you pay of $150,000 of the property’s principal and the value increases to $600,000. This means the equity you have in this property is $250,000 ($600,000 minus $350,000). You can use this equity to refinance and place a deposit on another property.
Existing equity can be leveraged when buying a new property. But before doing so, it’s always recommended to seek professional advice so you understand the how itwill change your financial situation. For example, using all of your property’s equity could result in needing to pay Lenders Mortgage Insurance on the refinanced loan.
5. Utilise the depreciation deductions available
Far too many investors fail to claim depreciation to its full potential. It’s easily missed.Avoid this mistake by ensuring your tax depreciation schedule is up to scratch and identifies every possible depreciable item.
It’s important to also consider the potential depreciation claim on the property you are looking to purchase. Depreciation has the potential to turn a negative cash flow into a positive one – making a big difference to the viability of another investment.
To learn more about depreciation, contact BMT on 1300 728 726 or Request a Quote.